STONE, et al. v. STATE, et al.

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STONE, et al.

v.

STATE, et al.

September 21, 2001

No. 217485

LC No. 98-016939-CM

Court of Claims

JOHN T. STONE and PHILLIP M. STEVENS, for
Themselves and All Others Similarly Situated,

Defendants state of Michigan and the Department
of Treasury appeal by leave granted an order granting
plaintiffs’ motion for summary disposition pursuant to MCR
2.116(C)(10). Defendants challenge the court of claims’
determination that monthly payments for accumulated sick leave
under a special statutory provision[1]of an early retirement program for state employees are
exempt from state, county, city, and other local taxes. We
affirm.

I. Basic Facts And Procedural History

A. Early Retirement And Accumulated Sick Leave

In 1996, the Legislature created an early
retirement program for state employees who met certain criteria,
including age requirements and length of service. This was part
of a larger effort to extend to state employees some of the
benefits private sector employees enjoyed at the time, such as
defined contribution employment plans.[2]To streamline the state workforce and reduce state
payroll costs, in 1997 the Legislature widened the group of state
workers who were eligible to participate in the program.[3]The Legislature incorporated the terms of this special
early retirement program in the State Employees Retirement Act
(SERA),[4] determining the levels of compensation these retirants[5]would receive.[6]

Plaintiffs are a class of individuals who
retired or contemplated retiring under this early retirement
program. As they would likely point out, length of service is
only one factor that affects the amount of money each retirant
receives under this early retirement program. Under the
compensation plan of the Michigan Civil Service Commission (the
Commission), all state workers are entitled to accumulate sick
leave during the course of their employment.[7]Commission Rule 5-5.4(a) provides that "[c]rediting
and utilization of sick leave, as well as payment at retirement,
separation, or death shall be in accordance with provisions
contained in the official compensation plan," meaning that
this accumulated sick leave may be payable at retirement. The
compensation plan distinguishes between workers hired before and
after October 1, 1980. Workers hired before October 1, 1980,
are paid for accumulated sick leave when they retire. Employees
hired after October 1, 1980, are not eligible to be paid for
unused sick leave at all.

Ordinarily, payment for accumulated sick leave
to retirants hired by the state before October 1, 1980, occurs in
a single lump sum. According to defendants, the state taxed each
retirant’s lump sum payment as income in the year the
retirant received it. However, the SERA provides in MCL 38.19f(3)
that "[a]ny amount that a member retiring under this section
would otherwise be entitled to receive in a lump sum at
retirement on account of accumulated sick leave shall be paid in
sixty consecutive equal monthly installments." When the
state began making monthly accumulated sick leave payments to
retirants under the 1996-1997 early retirement program, the state
taxed these payments as if they were the traditional lump sum
payments for accumulated sick leave, apparently withholding both
state and local taxes from the payments.

B. Plaintiffs’ Suit

In March 1998, plaintiffs sued in the court of
claims, alleging that defendants could not tax these monthly
accumulated sick leave payments. Plaintiffs claimed in their
first amended complaint that withholding income taxes from the
monthly accumulated sick leave payments was a breach of contract
and deprived them of property without due process of law.[8]Further, they contended, the right to monthly
accumulated sick leave payments under MCL 38.19f(3) had to be
viewed in light of MCL 38.40(1), a related subsection of SERA
that states:

The right of a person to a pension, an
annuity, a retirement allowance, any optional benefit, any
other right accrued or accruing to any person under the
provisions of this act, the various funds created by
this act, and all money and investments and income of the
funds, are exempt from any state, county, municipal,
or other local tax, and shall not be subject to
execution, garnishment, attachment, the operation of
bankruptcy or insolvency laws, or other process of law,
and shall be unassignable except as otherwise provided in
this act.[9]

Thus, plaintiffs argued that defendants had
violated the SERA by withholding money owed to the state for the
accumulated sick leave payments and by withholding taxes for
other taxing authorities.

Plaintiffs moved for summary disposition under
MCR 2.116(C)(9) and (10). Defendants responded by requesting
summary disposition in their favor pursuant to MCR 2.116(I)(2).
The parties essentially disputed whether the right to be paid for
accumulated sick leave "accrued" under the SERA, which
would then determine whether the monthly accumulated sick leave
payments were tax-exempt. Defendants argued that the right to be
paid for accumulated sick leave "accrued" under the
compensation plan and, therefore, that the monthly accumulated
sick leave payments could be taxed in the same way as the lump
sum accumulated sick leave payments. In support of their argument
for tax-exemption, plaintiffs pointed out that the SERA, MCL
38.19f(3), specifically prescribes the manner in which they are
paid for accumulated sick leave and, therefore, the monthly
accumulated sick leave payments "accrued" under SERA.

The court of claims rejected defendants’
argument that the case could not proceed because plaintiffs had
failed to join as necessary parties the local taxing authorities
for whom the state was withholding taxes. However, the court of
claims denied plaintiffs’ motion for summary disposition
under MCR 2.116(C)(9). Instead, the court of claims granted
defendants summary disposition of plaintiffs’ claim that
withholding taxes on monthly accumulated sick leave payments was
a constitutional tort, violating the right to due process of law.
The court of claims granted plaintiffs’ motion for summary
disposition regarding the claim for breach of contract under MCR
2.116(C)(10). The court of claims reasoned the monthly
accumulated sick leave payments constituted a right that
"accrued" under the SERA as well as an "optional
benefit." Accordingly, the monthly accumulated sick leave
payments were tax-exempt under MCL 38.40(1). The court of claims
also determined that Const 1963, art 9, Sect. 24, protected
the vested right these retirants had in being paid for their
accumulated sick leave from being diminished as a matter of
contract law. The court of claims concluded that, by taxing these
monthly accumulated sick leave payments when the retirants did
not earn interest on the unpaid accumulated sick leave over the
five-year pay-out period, defendants breached this contract and
violated the constitution.[10]Consequently, the court of claims
issued an injunction preventing defendants from "withholding
income taxes from Plaintiffs’ sick leave installment
payments," but later stayed the effect of this injunction
pending appeal.

C. Defendants’ Appeal

On appeal, defendants advance the same legal
arguments concerning whether the monthly accumulated sick leave
payments are taxable. Defendants also contend that the court of
claims erred when it concluded that plaintiffs did not have to
join as defendants all entities that received the taxes from the
monthly accumulated sick leave payments. Further, defendants
assert that the court of claims lacked the authority to issue an
injunction against defendants.

II. SERA

A. Standard Of Review

To address this portion of the appeal, we must
interpret and apply the relevant statutes, a task this Court
undertakes by conducting review de novo.[11]

B. Summary Disposition And Statutory
Interpretation

A motion for summary disposition under MCR
2.116(C)(10) tests the factual underpinnings of a claim other
than an amount of damages, and the deciding court considers all
the evidence, affidavits, pleadings, admissions, and other
information available in the record.[12]The deciding court must look at all the
evidence in the light most favorable to the nonmoving party, who
must be given the benefit of every reasonable doubt.[13]
Only if there is no factual dispute, making the moving party
entitled to judgment as a matter of law, would summary
disposition be appropriate.[14]The process of applying a statute
intersects with this legal standard for summary disposition at
the point where the court deciding a motion for summary
disposition considers whether the moving party is entitled to
judgment as a matter of law. In other words, the court must
understand what the law is in order to determine which party is
entitled to judgment when there is a settled factual record.[15]

Our primary goal when interpreting statutes is
to determine and give effect to the Legislature’s intent.[16]The best way to determine this legislative
intent is to examine the language of the statute at issue[17]because we presume that the Legislature
intended to give the statute the meaning it "plainly
expressed."[18]If the meaning of the statute is
clear, then courts have no further role in interpreting it; the
statute must be applied as written.[19]However, if the statute’s meaning is not clear,
courts "must look to the object of the statute in light of
the harm it is designed to remedy, and strive to apply a
reasonable construction that will best accomplish the
Legislature’s purpose," without "abandon[ing] the
canons of common sense."[20]In doing this, courts must give effect to every phrase,
clause, and word in a statute in order to avoid rendering any
part of a statute meaningless.[21]Unless specifically defined in the statute, every word
or phrase in a statute should be given its obvious and ordinary
meaning, considering the context and any technical terms, which
must be given their particular connotation.[22]

There are also special rules of statutory
construction that apply to pension laws[23]and laws granting tax exemptions.[24]The parties engage in a lengthy skirmish in their briefs
concerning which rule of construction should take precedence over
the other. However, we need not employ those rules in this case,
nor resolve any potential conflict between them. As we explain in
greater detail below, we conclude that the Legislature’s
intent is clear from the statutes at issue.

C. "Rights" And "Accruals"

(1) "Rights" In MCL 38.40(1)

The parties agree that plaintiffs are not
entitled to the tax exemption in MCL 38.40(1) under the language
referring to a "pension," an "annuity," or a
"retirement allowance." Rather, their dispute mainly
concerns whether plaintiffs are entitled to this tax exemption
because their "right" to be paid for accumulated sick
leave "accrued" or is "accruing" under the
SERA.[25]The SERA does not specifically define what constitutes a
"right," nor how a right "accrues" under its
provisions. We do not need to consult a dictionary to determine
that the word "right," used in this context as a noun,
has the plain meaning of a legal entitlement. Thus, when
discussing "rights," MCL 38.40(1) refers to a
person’s legal entitlement to receive a "pension,"
an "annuity," a "retirement allowance," an
"optional benefit," or any other right accrued or
accruing under the SERA.

If "legal entitlement" is a broad
interpretation of the word "right," we conclude that it
is purposefully so. By listing the most common varieties of
retirement benefits and then adding "any other right
accrued or accruing to any person under the provisions of
this act," the Legislature made this category of tax-exempt
rights a wide one.[26]As long as the property that would
otherwise be taxed is enumerated in MCL 38.40(1) or
"accrued" or is "accruing" under the SERA, it
is free from the specified taxes.

(2) "Accruals" In MCL 38.40(1)

What, then, does it mean for a right – a
legal entitlement – to "accrue" under the SERA?
According to the dictionary, to accrue means in relevant part
"to happen or result as a natural growth, [or]
addition" and "to become a present and enforceable
right."[27] This second definition is somewhat is circular in its
reasoning, suggesting that a right accrues once it becomes a
right.[28] However, when read logically with the "natural
addition or growth" language, the dictionary definition
implies that a right accrues under the SERA if the SERA is a
statutory basis for the right.

Defendants, in their strongest argument, point
to the language in MCL 38.19f(3) to contend that the legal
entitlement to be paid for accumulated sick leave does not
"accrue" under the SERA. Specifically, they argue that
accumulated sick leave is an "amount" that plaintiffs
"would otherwise be entitled to receive in a lump sum at
retirement," emphasizing that the word "otherwise"
indicates that the right to be paid comes from some source
outside the SERA. Certainly, they argue, it is plain that neither
MCL 38.19f(3), nor any related provisions "created"
this right under the SERA because it already existed under an
entirely separate program, the Commission’s compensation
plan. Nor is the right to be paid for accumulated sick leave a
"new" right under the SERA, defendants note, because
the retirants accumulated the unpaid sick leave over the course
of their employment with the state pursuant to the compensation
plan. While each of these assertions may be true as a matter of
fact, nothing in MCL 38.40(1) requires that the SERA
"create" a right to payment or that this right to
payment be "new" in order for it to be tax-exempt. That
different aspects of the right to be paid for accumulated sick
leave might be traced to more than one legal source is not
determinative. Nowhere in MCL 38.40(1) did the Legislature
indicate that that the SERA must be the exclusive source of a
right for that right to be tax-exempt. Instead, MCL 38.40(1)
suggests that when the Legislature gives legal force and effect
to an entitlement by incorporating it in the SERA, the
entitlement is part of the SERA and, therefore,
"accrued" or is "accruing" under its
provisions.

By relying on a technical definition of
"accrued compensation" from the accounting context,
defendants fail to posit a meaningful definition of the words
"accrued" or "accruing" under the SERA. In
other words, defendants confuse how state employees accumulate
unused sick leave with the right to be paid for that leave when
the employees retire from state service under this specific early
retirement program. We do not doubt that plaintiffs each accumulated
sick leave over the course of their employment pursuant to the
Commission’s compensation plan, not just when the
Legislature decided to amend the SERA to offer this early
retirement program. However, we are equally sure that the right
to be paid for this accumulated sick leave in monthly
installments accrued under MCL 38.19f(3).

(3) The Form Of Payment And The Right to
Payment

Defendants have spent significant time arguing
that, by accepting the terms of the early retirement program
incorporated in the SERA, each retirant waived the right to
receive accumulated sick leave payments in any form other than
the sixty monthly installments. Defendants make this argument in
an attempt to refute the court of claims’ reasoning that
plaintiffs could not waive their contractual rights resulting
from work for the state. However, defendants’ argument
illustrates how inextricably intertwined this form of monthly
accumulated sick leave payment is with the substantive right to
be paid for accumulated sick leave at retirement. The Legislature
did not distinguish between the substantive right to be paid
"any amount" that accrued under the SERA and the
process of payment under the SERA. The right to a form of payment
for accumulated sick leave, in this instance to sixty consecutive
monthly payments, comes from MCL 38.19(f)(3). This satisfies the
broad language in MCL 38.40(1) that extends tax exemption to
"any other right accrued or accruing to any person
under the provisions of"[29]the SERA.

Whether this monthly payment plan under MCL
38.19f(3) is financially more or less favorable to retirants is
not germane when construing the tax exemption language in MCL
38.40(1). Rather, we emphasize, the Legislature placed these
monthly accumulated sick leave payments squarely within MCL
38.19f(3). MCL 38.19(f)(3) is unambiguously part of the SERA. It,
therefore, is the SERA itself, not simply the Commission’s
compensation plan, that entitles retirants under the 1996 and
1997 amendments to be paid for accumulated sick leave in sixty
consecutive monthly installments. Indeed, MCL 38.19f(3) also
explicitly ties the substantive right to monthly accumulated sick
leave payments to the SERA by acknowledging that the retirants
who receive these sixty installment payments are actually
"retiring" under the SERA.

The Legislature, which is familiar with the
rules of statutory construction[30]and existing laws,[31]knew that the tax
exemption in MCL 38.40(1) existed when it amended the SERA in
1996 and 1997. Had the Legislature intended to make monthly
accumulated sick leave payments taxable, it could have done one
of three things. First, the Legislature could have enacted
legislation that was distinct from the SERA to govern the early
retirement program, thereby taking the accumulated sick leave
payments and any other aspect of the early retirement program
outside SERA and the tax-exemption provisions of MCL 38.40(1).
Second, the Legislature could have inserted a clause within SERA
excluding the monthly accumulated sick leave payments from the
tax-exemption provisions MCL 38.40(1). The Legislature, in
enacting other subsections of MCL 38.19f, used this very
technique.[32]Third, the Legislature
could have amended MCL 38.40(1) itself to exclude the monthly
accumulated sick leave payments explicitly from the tax
exemption. The Legislature’s failure to take any one of
these actions is evidence of its intent to make the tax-exemption
provisions of MCL 38.40(1) apply to the monthly accumulated sick
leave payments under MCL 38.19f(3).

(4) "Rights" and "Accruals"
Redux

The statutory entitlement to monthly
accumulated sick leave payments is a "right" that
"accrues" under the SERA. It is the SERA itself, not
the Commission’s compensation plan, that entitles retirants
under the 1996 and 1997 amendments to be paid in sixty
consecutive monthly installments. Because the legislature knew of
the tax-exemption provisions of MCL 38.40(1) when it enacted the
1996 and 1997 amendments to the SERA, its intent was clear: the
Legislature intended that the sixty consecutive monthly payments
under MCL 38.19(f)(3) be tax-exempt pursuant to MCL 38.40(1).

D. Ejusdem Generis

Defendants contend that the Legislature
intended that only "genuine" pension and
retirement benefits be tax-exempt. Defendants point out that, in
MCL 38.40(1), the Legislature referred to "a pension, an
annuity, a retirement allowance, any optional benefit"
before using the "any other right" wording. Defendants,
without citing any authority, claim that only pension and
retirement benefits that are "created" under the SERA,
and that are also payable from funds designated in the SERA,
constitute these tax-exempt benefits. Because the SERA did not
"create" the right to accumulated sick leave, and
because the monthly accumulated sick leave payments are not paid
from funds designated within the SERA, defendants argue,
accumulated sick leave payments are outside the class of these
tax-exempt benefits and therefore taxable.

In making this argument, defendants rely on the
ejusdem generis doctrine. This doctrine holds that if

"general words follow an
enumeration of persons or things, by words of a
particular and specific meaning, such general words are
not to be construed in their widest extent, but are to be
held as applying only to persons or things of the same
general kind or class as those specifically
mentioned."[33]

Nevertheless, courts are not customarily at
liberty to depart from the plain language of a statute when the
Legislature chooses to list various actions, conditions, peoples,
places, or other things in a statute. The ejusdem doctrine does
not control the interpretation and application of a statute if
the Legislature has clearly expressed its intent even if that
intent expands the category at issue significantly beyond the
implication of the other words used.[34]

We emphasize that we simply cannot envision
language broader than "any other right" in the context
of MCL 38.40(1). As the dictionary suggests, the word
"any" suggests the absence of limits altogether.[35]
This broad language is purposeful. The remainder of the sentence
requires that the right "accrue" under the SERA. This
imposes a logical limitation on the kind of right that is
tax-exempt. "Other rights" that are tax-exempt earn
this status because those rights are, in some way, related to
retirement by state employees by virtue of their inclusion in the
SERA. Despite defendants’ unstated fear to the contrary,
this interpretation does not permit rights unrelated to
retirement under the SERA to become tax-exempt. The tax exemption
for accumulated sick leave is only relevant when state employees
who were hired before October 1, 1980, retire under the SERA.

The court of claims observed that the
Legislature might have intended for this tax-emption to make up
for the loss of investment income, that is, interest, that these
retirants might earn on their subsequent investments if the state
paid the accumulated sick leave in a lump sum rather than in
sixty consecutive monthly installments. In truth, however, we do
not need to decide why the Legislature used such
all-encompassing language. The underlying purpose of this
legislation does not alter the unambiguous language in MCL
38.40(1). When the language is clear, we need not apply the
ejusdem generis doctrine.[36]
Further, if we were to apply the doctrine in this case, we would
exceed our authority by grafting on MCL 38.40(1) a condition for
tax-exemption that the Legislature chose not to impose.

E. Absurd Result

Defendants also argue that this Court should
not interpret MCL 38.40(1) in a way that makes the monthly
accumulated sick leave installment payments under MCL 38.19f(3)
tax-exempt because it would hand plaintiffs a windfall that the
Legislature did not intend. Evidently, they contend that this
interpretation could entitle retirants to a lump sum payment
under the Commission’s compensation plan and monthly
payments under MCL 38.19f(3). This would be so because the
Legislature does not have the authority to override the
Commission’s constitutional rulemaking authority under Const
1963, art 11, Sect. 5. Thus, defendants argue, this Court
should not affirm what amounts to an absurd result.

In the abstract, we would be inclined to agree
that this is the sort of absurd result our fiscally-conscious
Legislature does not ordinarily intend.[37]There are, however, any number of
problems with this conclusion. First, defendants do not claim
that this double payout will actually occur. Second, in this
suit, plaintiffs have not asked for relief that includes a double
payout for accumulated sick leave; plaintiffs contend that MCL
38.19f(3) alters only the timing of these accumulated sick leave
payments, not their amount. Third, defendants concede that
installment payments do not violate any Commission rules, leaving
no conflict between the respective constitutional authorities of
the Commission and the Legislature.[38]Rather, this is simply an area where the Legislature and
the Commission have exercised their respective authorities in a
way that overlap to a certain extent,[39]but do not infringe on the other’s exclusive
domain.

Further, if MCL 38.19f(3) were an
unconstitutional attempt by the Legislature to invade the
Commission’s authority, the unconstitutional nature of MCL
38.19f(3) would persist regardless of the tax ramifications for
the monthly accumulated sick leave payments. However, defendants
do not contest that qualified retirants are entitled to receive
monthly accumulated sick leave payments under MCL 38.19f(3) if
the payments are taxed. Defendants cannot argue that the
Legislature invaded the Commission’s province by making the
monthly accumulated sick leave payments tax-exempt without also
challenging the Legislature’s basic right to deal with
accumulated sick leave payments under MCL 38.19f(3) in the first
place.

Our focus on the taxation ramifications for
monthly accumulated sick leave payments is, we observe, sensible
in light of the court of claims’ conclusion that denying
tax-exempt status for the monthly accumulated sick leave payments
was unconstitutional because it diminished the value of
accumulated sick leave.[40] However, we need not resolve whether the withholding
taxes from the monthly accumulated sick leave payments would be
unconstitutional under Const 1963, art 9, Sect. 24. We have
already concluded that the Legislature intended for these
payments to be tax-exempt by enacting MCL 38.19f(3) with the
knowledge that MCL 38.40(1) was in place. We see no absurd result
in the Legislature’s choice to make these payments
tax-exempt.

F. Conclusion

The Legislature made accumulated sick leave
payments under MCL 38.19f(3) tax-exempt in the "any other
right" language in MCL 38.40(1). Because plaintiffs were
entitled to judgment as a matter of law, the court of claims did
not err in granting their motion for summary disposition on this
contract claim.

III. Necessary Joinder

A. Issue Presented

Defendants argue that the court of claims could
not compel them or the local taxing authorities to refund
the taxes they withheld from the accumulated sick leave payments
without first joining these local taxing authorities as necessary
parties. Further, defendants contend that the court of claims
lacked jurisdiction to compel the local taxing authorities to
refund the accumulated sick leave taxes because plaintiffs failed
to comply with the refund procedure in the City Income Tax Act.[41]
However, the question presented in this appeal asks us only to
determine "[w]hether the court of claims erred in granting
relief against local taxing authorities, where plaintiffs
failed to join the local taxing authorities as necessary
parties."[42] Defendants have failed to present for appeal a question
asking whether nonjoinder of the local taxing authorities
deprived the court of claims authority to order defendants
to refund the state taxes it withheld or to prevent defendants
from withholding taxes in the future.[43]Thus, we limit our
review to the question presented concerning any relief granted against
local taxing authorities.

B. Local Taxing Authorities

As a preliminary matter, we question whether
defendants have standing to challenge the relief the court of
claims ordered on behalf of the local taxing authorities.
Defendants contend that the failure to join the local taxing
authorities denied those authorities an opportunity to
participate in a hearing and to defend against the
plaintiffs’ claims to accumulated sick leave taxes already
in their respective city treasuries. The local taxing authorities
do have a legitimate and significant interest in being able to
challenge any relief that they may have to afford plaintiffs
given the outcome of the legal controversy surrounding the
interpretation of MCL 38.40(1).[44] However,
defendants have not explained how failing to join the local
taxing authorities could possibly affect defendants’
rights and interests in this litigation, even though this sort of
stake in the outcome of the issue is a traditional benchmark of
standing.[45] Further, defendants freely admit that they are not
experts in local tax collection and "could not adequately
represent the interest of the cities affected . . . ."
Consequently, we are uncertain why, in this appeal, defendants
take any position concerning the potential that the local taxing
authorities will have to refund taxes already collected from the
monthly accumulated sick leave payments.

Even if defendants do have standing to
challenge the court of claims’ order as it concerns the
local taxing authorities, it is critical to understand that
neither of the two orders the court of claims entered directly
affect the local taxing authorities in any respect. The first
order, entered in the record on November 20, 1998, granted
summary disposition in part to defendants and in part to
plaintiffs. This order has extremely limited language granting
relief to plaintiffs. The order only says that "Defendants
are hereby enjoined from withholding income taxes from
Plaintiffs’ sick leave installment payments." This
order does not require the local taxing authorities to refund the
accumulated sick leave taxes. Rather, this order grants
prospective equitable relief that is completely within
defendants’ control. The second order, entered in the record
on January 20, 1999, concerned only the parties’
post-judgment motions. This order did not grant any additional
relief to plaintiffs concerning refunds, whether from the state
or from local taxing authorities.

Simply put, neither order requires any
particular action or inaction by the local taxing authorities.
Nor does either order affect the local taxing authorities’
rights to demand that the successful plaintiffs follow
appropriate statutory procedures for securing the refund.[46]
Thus, defendants’ argument that the court of claims exceeded
its authority in granting plaintiffs relief as it concerns the
local taxing authorities is without merit.

IV. The Injunction

A. Standard Of Review

Defendants contend that the court of claims
erred as a matter of law when it enjoined defendants from
withholding taxes because MCL 205.28(1)(b) expressly prohibits
injunctions staying proceedings for the assessment and collection
of a tax. Having erred in issuing the injunction in the first
place, defendants also argue, the court of claims again erred
when it refused to dissolve the injunction. To resolve this issue
requires us to engage in statutory interpretation, which we
conduct de novo.[47]

B. MCL 205.28(1)

MCL 205.28(1) provides in relevant part:

The following conditions apply to all
taxes administered under this act unless otherwise
provided for in the specific tax statute:

* * *

(b) An injunction shall not issue to
stay proceedings for the assessment and collection of a
tax.

We cannot agree with defendants’ basic
proposition that this statute applies to the equitable remedy the
court of claim granted plaintiffs. The court of claims enjoined
defendants from withholding taxes for accumulated sick leave
payments. The plain language in MCL 205.28(1) only prevents
injunctions meant "to stay proceedings for the assessment
and collection of a tax." Self-evidently, this was not a
proceeding for the "assessment and collection" of a
tax. Rather, it was a lawsuit alleging that defendants had already
assessed and collected taxes and would do so again in the future,
albeit unlawfully in both instances. Once the court of claims
determined that defendants had no legal right to collect these
taxes, equitable relief was appropriate to prevent further harm
to plaintiffs. Though defendants cite a federal law prohibiting
injunctions in certain tax proceedings, this is a state taxation
matter that must be resolved on state law grounds.

Affirmed.

/s/ William C. Whitbeck

/s/ Michael J. Kelly

COLLINS, J. (dissenting).

I respectfully dissent. As I read the plain
language of MCL 38.19f(3), that section constitutes a condition
that retirement system members accept if they accept the
state’s offer of early retirement under the SERA. I do not
agree that MCL 38.19f(3)’s requirement that payment for
accrued sick leave be made in monthly installments, rather than
in a lump sum as would normally occur under the Michigan Civil
Service Commission (MCSC) Compensation Plan and MCSC Rules,
converted the payments for accumulated sick leave into a
tax-exempt retirement benefit under MCL 38.40(1).

While I acknowledge that the word
"any" is broad, the phrase "any other right"
in MCL 38.40(1) is limited by the phrase "accrued or
accruing to any person under the provisions of this act." In
the plain language of MCL 38.19f(3), "any amount that a
member retiring under this section would otherwise be entitled
to receive in a lump sum at retirement on account of
accumulated sick leave shall be paid in sixty consecutive monthly
installments" (emphasis added), the Legislature specifically
recognized that the right to receive payment for accumulated sick
leave "accrued" under something other than the SERA. It
is undisputed that the amount that a retirant "would
otherwise be entitled to receive in a lump sum at retirement on
account of accumulated sick leave" referenced in
MCL38.19f(3) is provided for in the MCSC Compensation Plan and
MCSC Rules. While it is true, as the majority states, that
"[n]owhere in MCL 38.40(1) does the Legislature indicate
that the SERA must be the exclusive source of a right for that
right to be tax-exempt," ante at ___, the fact
remains that if plaintiffs had not accumulated any sick leave
under the MCSC Compensation Plan, they would not be entitled to
any monthly installment payments under MCL 38.19f(3). The only
right that accrued under MCL 38.19f(3) is the right to receive in
monthly installments income to which the retirants were already
entitled. Defendants are collecting tax on that income, not
plaintiffs’ "right" to receive it in monthly
installments. MCL 38.19f(3) did not alter or augment the source
of plaintiffs’ right to receive payment for sick leave, but
only altered the manner of payment. In my view, payment for
accumulated sick leave, whatever the form, is not a right
accruing under the SERA.

Although I find the language of MCL 38.19f(3)
and MCL 38.40(1) to be plain, in light of my disagreement with
the majority’s interpretation of the statutory language, it
may be appropriate to turn to rules of statutory construction to
resolve the apparent ambiguity in meaning. See Adrian School
District v Michigan Public School Employees Retirement System,
458 Mich 326, 332; 582 NW2d 767 (1998). MCL 38.40(1) is clearly a
tax-exemption provision within the SERA. Tax exemptions are the
antithesis of tax equality. Advo-Systems, Inc v Dep’t of
Treasury, 186 Mich App 419, 423; 465 NW2d 349 (1990).
Therefore, exemptions from taxation generally are not favored and
are construed strictly against the taxpayer. Perry Drug
Stores, Inc v Dep’t of Treasury, 229 Mich App 453, 461;
582 NW2d 533 (1998); Advo Systems, supra. Accordingly, an
exemption from tax must be expressed in unambiguous terms:

Exemptions are never presumed, the
burden is on a claimant to establish clearly his right to
exemption, and an alleged grant of exemption will be
strictly construed and cannot be made out by inference or
implication but must be beyond reasonable doubt. In other
words, since taxation is the rule, and exemption the
exception, the intention to make an exemption ought to be
expressed in clear and unambiguous terms; it cannot be
taken to have been intended when the language of the
statute on which it depends is doubtful or uncertain; and
the burden of establishing it is upon him who claims it.
[Howard v Clinton Charter Twp, 230 Mich App 692,
696; 584 NW2d 644 (1998), citing Detroit v Detroit
Commercial College, 322 Mich 142, 148-149; 33 NW2d
737 (1948).]

The Legislature is presumed to be familiar with
rules of statutory construction. Alma Piston Co v Dep’t
of Treasury, 236 Mich App 365, 370; 600 NW2d 144 (1999).
Accordingly, I conclude that had the Legislature intended that
those retiring under the SERA be exempt from paying tax on income
that had always been taxable, while those retiring under normal
circumstances and those otherwise separating from state
employment[48]pay taxes on the income, it would
have done so in an unambiguous manner. In my reading of the
statute, the language of the SERA does not clearly and
unambiguously exempt the monthly installment payments for
accumulated sick leave from taxation. Accordingly, I conclude
that those payments are taxable.

The majority contends that if the Legislature
intended that the monthly installment payments for sick leave be
taxable, it would have explicitly excluded those monthly payments
from the tax-exemption provision of MCL 38.40(1) or enacted
legislation distinct from the SERA to govern the early retirement
program. Because I do not agree that plaintiffs’ right to
payment for accumulated sick leave, whatever the form,
constitutes a right that accrued under the SERA, however, I see
no need for the Legislature to have explicitly excluded the
monthly installment payments of that accumulated leave from MCL
38.40(1) or to have enacted legislation separate from the SERA to
take those payments outside the provisions of MCL 38.40(1).

I conclude that MCL 38.19f(3) does not
constitute a retirement benefit falling within the tax exemption
provided for in MCL 38.40(1). Rather, it is a condition retirants
accept if they accept the state’s offer of early retirement.
Accordingly, I would find that the monthly installment payments
made on account of accumulated sick leave are taxable income.
Further, because I conclude that MCL 38.19f(3) does not
constitute a financial benefit accruing under the SERA, I would
find that defendants’ taxation of the monthly installment
payments for accumulated sick leave does not constitute a
diminishment of a contractual benefit in violation of Const 1963,
art 9, section 24.

In light of my conclusions regarding the issues
discussed above, I do not address defendants’ remaining
issues on appeal.

I would reverse and remand for entry of summary
disposition in favor of defendants.

[5]A "retirant" is "a
person who has ceased to be a member of the retirement system by
reason of retirement with a pension or retirement allowance
payable from the funds of the retirement system." MCL
38.1h(2).

[25]We do not address whether the
court of claims erred when it determined that MCL 38.19f(3)
creates an "optional benefit" because we conclude that
the accumulated sick leave payments under that statute fall
within the language of MCL 38.40(1) granting "any other
right" that accrued under the SERA tax-exempt status.

[28]The issue is whether the right
accrued under the SERA, not specifically at what time the right
accrued. Thus, unlike an issue implicating a statute of
limitations, it is unnecessary to focus on the timing of the SERA
amendments in 1996 and 1997 and their relationship to the dates
when plaintiffs retired.

[31]See Walen v Dep’t of
Corrections, 443 Mich 240, 248, 505 NW2d 519 (1993) ("It
is a well-known principle that the Legislature is presumed to be
aware of, and thus to have considered the effect on, all existing
statutes when enacting new laws.").

[40]See Const 1963, art 9,
Sect. 24 ("The accrued financial benefits of each
pension plan and retirement system of the state and its political
subdivisions shall be a contractual obligation thereof which
shall not be diminished or impaired thereby.").

[44]Because the core issue in this
case is a matter of statutory interpretation subject to review de
novo, we are not certain that the local taxing authorities will
have legal grounds on which to object to refunding the taxes to
plaintiffs. In any event, plaintiffs in their brief on appeal
assert that they are willing to take the risk that failing to
join the local taxing authorities will affect their ability to
collect refunds from the local taxing authorities.

[46]At first, we were somewhat
surprised at the limited relief the court of claims ordered for
plaintiffs. The court of claims’ decision not to order any
refunds counterbalances any administrative efficiency plaintiffs
achieved through class certification. Though the court of claims
efficiently resolved each class member’s statutory
entitlement to a refund of the accumulated sick leave taxes
withheld, each class member now will have to apply to the state
and relevant local taxing authorities to receive a refund.
However, plaintiffs’ failure to cross-appeal the relief
afforded to them through summary disposition suggests that this
is a result they are prepared to tolerate.

[48]Retirees who were hired prior to
October 1, 1980, are not the only state employees entitled to
payment for accumulated sick leave. Under Section IV of the MCSC
Compensation Plan, those employees hired before October 1, 1980
who separate by reason of death or who simply leave state
employment also are entitled to payment for accumulated sick
leave under the terms of the compensation plan.